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Steel Dynamics (STLD) Up 8.9% Since Last Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for Steel Dynamics (STLD - Free Report) . Shares have added about 8.9% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Steel Dynamics due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Steel Dynamics' Earnings and Sales Top Estimates in Q1

Steel Dynamics logged net income of $187.3 million or 88 cents per share in first-quarter 2020, down from $204.3 million or 91 cents in the year-ago quarter. The figure surpassed the Zacks Consensus Estimate of 86 cents.

Net sales in the quarter fell 8.6% year over year to $2,575.1 million. Nevertheless, the figure beat the Zacks Consensus Estimate of $2,550.4 million.

Segment Highlights

Net sales in the company's steel operations declined 8.6% year over year to $1,941.7 million in the first quarter. Operating income fell 6.3% year over year to $292.7 million. Average product selling price for the unit declined 14.2% year over year to $774 per ton in the reported quarter. Steel shipments rose 6.1% year over year to roughly 2.85 million tons.

The company's fabrication operations raked in sales of $220.9 million, down 3.3% year over year. Operating income rose 41.3% to $29.2 million on a year-over-year basis.

Net sales in metals recycling operations fell 19.9% year over year to $291.9 million. The segment’s operating income declined 58.3% year over year to $8.3 million.

Financial Position

Steel Dynamics ended the first quarter with cash and cash equivalents of $1,235.5 million, up 28% year over year. Long-term debt was around $2,646 million, up 12.4% year over year.

The company generated $211 million of cash flow from operations in the first quarter. The company also repurchased shares worth $107 million of its common stock in the quarter.

Outlook

Steel Dynamics stated that it is too early to establish the full scope of the coronavirus impact on global economies and the related impact on domestic steel demand. The company noted that domestic steel orders from certain sectors have slowed significantly due to the temporary closures, especially the domestic automotive production and its related supply chain. Also, weakness in energy sector has impacted flat roll steel demand.

While some construction projects have been disrupted or postponed, fundamental aspects of the sector remain intact. The company’s steel order activities from construction along with strong steel fabrication order backlog also supports this trend. Steel Dynamics believes that steel demand will likely respond quickly when the economy reopens.

Moreover, the company remains positive on its new state-of-the art, electric-arc-furnace flat roll steel mill. The strategic project is expected to create long-term value through geographic and value-added product diversification.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended downward during the past month. The consensus estimate has shifted 21.08% due to these changes.

VGM Scores

At this time, Steel Dynamics has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Steel Dynamics has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.


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